Sovereign risk is the extra dimension of risk
involved in international, as distinct from domestic, transactions. Sovereign
risk is an aspect of the credit
proposal that is additional to the usual commercial risks such as credit, foreign
exchange and transport risks, and is outside the individual borrower's
control; it can override the borrower's willingness and ability to repay
financial obligations, even though the borrower may be a government. Sovereign risk implies the possibility that
conditions will develop in a country which inhibit repayment of funds
due from that country, such as exchange
controls, strikes or declarations of war.